Matters:

Nanhua Futures released its 2024 semi-annual report. 24H1 achieved total operating income of 2.64 billion yuan (-16.1% YoY), total operating income of 0.66 billion yuan (+13.7% YoY) using the net amount method (after deducting other business costs), and net profit of 0.23 billion yuan (YoY +36.7%). Q2 achieved total revenue of 1.65 billion yuan (-6.6% YoY +65.9%) and net profit of 0.14 billion yuan to mother (+36.3% YoY +68.8%).

Commentary:

Revenue side split: 24H1 Company's net income from interest/net commission income/net revenue from proprietary business operations/other business revenue (net method) was $3.5/0.27/0.01/0.02 billion, respectively, -16.1%/-4.8%/-55.9%/-59.2% compared with the same period last year.

In an environment of high interest rates, net income from overseas interest performed well. Subtracting the parent company's statement caliber from consolidated statements, 24H1 net income from overseas interest was 0.256 billion yuan (+30% YoY), and 24Q2 was 0.125 billion yuan (+23.4% YoY/-4.1% YoY). During the reporting period, the company obtained the US Intercontinental Exchange (ICE-US) clearing membership, and the overseas clearing license system was further improved. Since the Federal Reserve raised interest rates by 25 bps in July 2023, the federal funds rate has remained high at 5.33% for a long time. The high interest rate environment has contributed to an increase in net income from overseas interest.

Domestic business declined slightly due to reduced handling fees. 1) Futures brokerage business: In the first half of 2024, the bilateral turnover of the national futures market was 563 trillion yuan (+7.4% year over year), and the customer equity scale of the company's domestic futures brokerage business at the end of the reporting period was 25.774 billion yuan (+22.1% year over year). Affected by some industry policy adjustments and the downward trend in macroeconomic policy interest rates, the company's net income from domestic fees and commissions was 0.165 billion yuan (-19.9% YoY), of which net income from futures brokerage fees was 0.156 billion yuan (-20.7% YoY). 2) Net interest income: Domestic net interest income of 0.095 billion yuan (+34.8% year over year). 3) Risk management business: During the reporting period, the company achieved a base trade margin of 1.975 billion yuan (-24% YoY), added a nominal principal of 32.465 billion yuan (-23.7% YoY) for the OTC derivatives business, and achieved a market making business turnover of 83.749 billion yuan (-82.5% YoY).

Investment advice: In an overseas environment with high interest rates, the first half of the year's results were in line with expectations. The federal funds rate level is expected to remain high overall in '24, and foreign interest income will contribute an important profit growth point. We raised our profit forecast, 2024/2025/2026 EPS forecast: 0.90/1.10/1.17 yuan (previous values were 0.80/0.94/1.06 yuan, respectively), BPS forecast: 6.89/7.89/8.95 yuan, ROE: 13.1%/13.9%/13.0%.

The current stock price corresponds to PE 10.01/8.20/7.71 times, respectively. Recently, the company's valuation reached the bottom of nearly five years. We gave the company a PE valuation of 15 times its 2024 performance, corresponding to a target price of 13.5 yuan, maintaining a “recommended” rating.

Risk warning: The Federal Reserve has exceeded expectations and entered the interest rate cut cycle, and the company's interest rate expectations are uncertain; there is uncertainty about exchange fee cuts; there is a risk of changes in regulatory policies; and the risk of fluctuations in futures market trading volume.